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Kraft Plans Split

Will divide North American grocery and global snacks businesses into independent entities

August 3, 2011, 08:00 pm

Kraft Foods Inc. has revealed its plans to split itself into two independent public companies: a $32 billion high-growth global snacks business and a $16 billion high-margin North American grocery business.

The company expects to create these companies by the end of 2012 through a tax-free spin-off of the North American grocery business to Kraft Foods shareholders.

“As our second-quarter results once again show, our businesses are benefiting from a virtuous cycle of growth and investment, which we fully expect will continue,” said Irene Rosenfeld, chairman and CEO of the Northfield, Ill.-based company. “We have built two strong, but distinct, portfolios. Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realize their full potential. The next phase of our development recognizes the distinct priorities within our portfolio. The global snacks business has tremendous opportunities for growth as consumer demand for snacks increases around the world. The North American grocery business has a remarkable set of iconic brands, industry-leading margins and the clear ability to generate significant cash flow.”

Over the last several years, Kraft has transformed its portfolio by expanding geographically and building its presence in the fast-growing snacking category. A series of strategic acquisitions – notably of LU biscuit from Danone and of Cadbury Plc – and the strong organic growth of its “Power Brands” have made Kraft the world’s leading snacks company. Meanwhile, the company has continued to invest in product quality, marketing and innovation behind its iconic North American brands, while implementing a series of cost management initiatives. As a result, the company has delivered strong results in very challenging economic conditions.

Kraft officials say they’ve built a global snacking platform and a North American grocery business that now differ in their future strategic priorities, growth profiles and operational focus. A detailed internal review has shown that these two businesses would now benefit from being run independently of each other, rather than as part of the same company.

Global snacks will consist of the current Kraft Foods Europe and Developing Markets units as well as the North American snacks and confectionery businesses. Key brands would include Oreo and LU biscuits, Cadbury and Milka chocolates, Trident gum, Jacobs coffee and Tang powdered beverages. The North American grocery business would consist of the current U.S. Beverages, Cheese, Convenient Meals and Grocery segments and the non-snack categories in Canada and Food Service. Key brands would include Kraft macaroni and cheese, Oscar Mayer meats, Philadelphia cream cheese, Maxwell House coffee, Capri Sun beverages, Jell-O desserts and Miracle Whip salad dressing.

“Our employees’ hard work and accomplishments have transformed Kraft Foods and enabled us to take this next step in the company's evolution,” Rosenfeld said.